Overwhelmingly, consumer debt is thought of in a negative context. Credit card debt, personal loans and payday loans all carry a bad reputation for allowing individuals to live beyond their means. MSN Money reports that roughly 43 percent of Americans spend more money than their annual salaries should allow. With nearly half of all households in the United States relying on credit cards to make ends meet, it is easy to see how consumer debt shines such a bad light. However, not all consumer debt is negative. The ability to borrow money can be a good thing in certain situations.
Mortgage
Borrowing money to buy a house is one instance where consumer debt can be positive. Since the large majority of Americans do not have the ability to pay cash for a home, they must seek financing. When done responsibly, buying a home is a very positive event. Consumers need to be responsible when borrowing for a home and only buy a house with payments that are easily affordable. When houses are purchased and the housing market increases, jobs are created. Oftentimes, homeowners have work done to the house, including repairs, additions and renovations, leading to more jobs in these areas.
Student Loans
Another instance where consumer debt can be beneficial is through student loans. A college degree gives an individual a much higher chance at obtaining a secure and well-paying job after graduation. Around 60 percent of undergraduate students use financing to pay for their education. Federal student loans in many instances offer deferred payments until the recipient has graduated, with incredibly low interest rates compared to traditional credit cards and personal loans. Student loans also help build a credit history, which is important because college students typically haven't had the time to build a credit file yet.
Credit Cards and Interest
Using credit cards as an extension of your income is a bad move. By spending more than you make, you end up with mountains of credit card debt that are not easily paid off. Whenever a tragedy strikes such as the loss of a job or an illness, consumers can find themselves with more bills than money. As credit cards go unpaid, accounts become charged off and are sent to collection agencies, ruining your credit score. Ideally, credit cards should not be used unless the bill can be paid in full when it arrives. Some cards have high interest rates and you end up paying thousands more by the time you've paid off the card. High interest rates, especially after a default, can cost consumers tremendously.
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